Business Context and Reporting Period
Company: RH (formerly Restoration Hardware, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: August 1, 2026 (Second Quarter of Fiscal 2026)
Business Overview: RH is a leading luxury lifestyle brand and retailer of home furnishings, operating 77 RH Galleries, 44 RH Outlet stores, one RH Guesthouse, one Interior Design Studio, and 15 Waterworks Showrooms globally. The company operates three segments: RH Segment, Waterworks, and Real Estate.
Key Financial Metrics
| Metric | Three Months Ended Aug 1, 2026 | Six Months Ended Aug 1, 2026 |
|---|---|---|
| Net Revenues | $922.2 million | $1,722.5 million |
| Gross Profit | $444.9 million | $776.1 million |
| Gross Margin | 48.2% | 45.1% |
| Operating Income | $107.6 million | $141.8 million |
| Net Income | $60.2 million | $46.5 million |
| Diluted EPS | $3.06 | $2.36 |
| Operating Cash Flow (6mo) | $197.7 million | |
| Cash and Equivalents (End of Period) | $125.5 million | |
| Total Debt (Net of Cash) | $2.26 billion | |
| ABL Credit Facility Availability | $334.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 2.6% year-over-year (Q2) and 0.5% year-over-year (YTD). Growth was driven by hospitality revenue from new Gallery openings and product transformation, partially offset by lower core business revenue.
- Margin Expansion: Gross margin improved significantly to 48.2% in Q2 (up 270 bps) and 45.1% YTD (up 50 bps). This was primarily due to $55 million in tariff refunds recognized in Cost of Goods Sold following a U.S. Supreme Court ruling on IEEPA tariffs.
- Operating Expenses: SG&A expenses increased 20.3% in Q2 and 9.4% YTD. Increases were driven by advertising for the new "RH Estates" collection, pre-opening costs for new Galleries, and a $13.6 million non-cash loss related to the restructuring of Variable Interest Entities (VIEs).
- Equity Method Investments: The company recognized $18 million of income from equity method investments in Q2, largely due to a $20 million gain from the VIE restructuring of Aspen LLCs.
Guidance, Outlook, and Risks
- Capital Expenditures: Management anticipates adjusted capital expenditures of $240 million to $260 million for fiscal 2026, focused on new Design Gallery construction and infrastructure.
- Strategic Initiatives: Continued global expansion with recent openings in Milan and London. The company is transitioning from a leasing model to a development model for real estate, having recently acquired sole ownership of four completed Gallery locations and three development sites via the VIE restructuring.
- Liquidity: The company maintains a $600 million Asset Based Credit Facility (ABL) with $334 million available. Term loans total approximately $2.39 billion. Management believes existing cash and operating cash flows are sufficient for the next 12 months.
- Risks:
- Tariff Uncertainty: While recent refunds provided relief, future trade policies and potential new tariffs remain a significant risk to cost structures.
- Macroeconomic Conditions: High interest rates, inflation, and a slowdown in the luxury home market continue to impact consumer demand.
- Construction Costs: Rising costs for building new Galleries may impact capital allocation and timing of revenue recognition from new locations.
Investor Verification Checklist
- Tariff Refund Sustainability: Verify the extent to which the $55 million tariff refund is a one-time benefit versus a recurring adjustment to cost of goods sold.
- VIE Restructuring Impact: Confirm the long-term financial implications of the May 2026 restructuring of Aspen LLCs, specifically the shift from equity method accounting to consolidated ownership for certain properties.
- Capital Expenditure Execution: Monitor the $240-$260 million CapEx guidance against actual spending, particularly regarding the timeline for new Gallery openings in Europe and North America.
- Debt Covenants: Review compliance with the Fixed Charge Coverage Ratio (FCCR) covenant on the ABL facility, which is triggered if unused availability drops below specific thresholds.
- Inventory Levels: Assess the $772.7 million inventory balance relative to sales velocity, given the company's heavy investment in new product collections.